Michigan Court of Appeals; Docket #354517; Unpublished
Judges Rick, Ronayne Krause, and Letica; Per Curiam
Official Michigan Reporter Citation: Not Applicable; Link to Opinion
Collateral Estoppel and Res Judicata
In this unanimous unpublished per curiam decision, the Court of Appeals reversed the trial court’s summary disposition order dismissing Plaintiff Enhance Center for Interventional Spine & Sports’ (“Enhance”) first-party action against Defendant Auto-Owners Insurance Company (“Auto-Owners”) on the basis of res judicata. The Court of Appeals held that, because Enhance obtained an assignment from its patient/Auto-Owners’ insured, Kelly Johnson, before Johnson’s first-party action against Auto-Owners was dismissed, Enhance’s separate, subsequent first-party action was not barred by res judicata.
Kelly Johnson was injured in a motor vehicle collision and thereafter filed a first-party action against Auto-Owners to recover unpaid no-fault PIP benefits. While Johnson’s action was pending, she received treatment from, and assigned her right to pursue benefits related to her treatment to, Enhance. Enhance never intervened in Johnson’s suit, which was ultimately dismissed as a result of her failure to respond to requests for admission and produce court-ordered discovery materials. Enhance then filed a separate lawsuit against Home-Owners on the basis of the assignment it obtained from Johnson, but the trial court granted summary disposition for Home-Owners, ruling that Enhance’s action was barred by res judicata in light of the dismissal of Johnson’s prior lawsuit.
The Court of Appeals reversed the trial court’s summary disposition order, holding that, because Enhance obtained its assignment before the judgment was entered in Johnson’s action, and because Enhance had no opportunity to be heard in Johnson’s action, Enhance was not bound by the judgment in Johnson’s action. The Court noted that res judicata only applies when a subsequent action “ ‘was decided on the merits,’ ” when “ ‘the matter contested in the second action was or could have been resolved in the first,’ ” and when “ ‘both actions involve the same parties or their privies.’ ” In this case, Enhance’s action did not involve the same parties or their privies, because, as the Court made clear in Mecosta Co Med Ctr v Metro Group Prop & Cas Ins Co, unpublished opinion of the Court of Appeals, issued March 24, 2020 (Docket No. 345868), “ ‘an assignee is in privity with the assignor only up to the time of the assignment.’ ” Therefore, Johnson was only in privity with Enhance up to the time of assignment—which was before Johnson’s action was dismissed—and because Enhance was not a party to Johnson’s action, res judicata did not apply in this case.
"In Howell v Vito’s Trucking & Excavating Co, 386 Mich 37, 43; 191 NW2d 313 (1971), the Supreme Court recognized that privity’s ‘definitional groundwork’ incorporates that ‘[a] privy is one who, after rendition of the judgment, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession, or purchase.’ (Emphasis added, quotation marks and citation omitted.) This formulation aligns with Aultman’s holding that an assignee otherwise in privity with its assignor is not bound by a judgment entered after the assignment at issue. Aultman, 115 Mich at 154. As this Court explained in Mecosta:
A contrary rule would allow an assignor to cut off the rights of the assignee without affording him an opportunity to be heard. [Aultman, 115 Mich at 154.] Indeed, it may constitute a deprivation of property without due process of law to extend privity to bind an assignee by a judgment entered against his or her assignor that occurred after the assignor assigned his or her rights in the property. Postal Tel Cable Co, 247 US 464, 476; 38 S Ct 566; 62 L Ed 1215 (1928). In this state rather, for purposes of property law, an assignee is in privity with the assignor only up to the time of the assignment. See [Howell, 386 Mich at 43.] Accordingly, if the party asserting preclusion has no other basis for establishing privity beyond the fact that the assignee succeeded to the assignor’s interest, the party asserting preclusion will not prevail unless the judgment was entered before the transfer at issue. Id. [Mecosta Co Med Ctr, unpub op at 4-5.]
Enhance was not bound by the judgment against Johnson in the first action because the assignment was made before the judgment against Johnson was entered and Enhance had no opportunity to be heard in that case. In Taylor v Sturgell, 553 US 880, 891; 128 S Ct 2161; 171 L Ed 2d 155 (2008), the United States Supreme Court observed that ‘[t]he federal common law of preclusion is, of course, subject to due process limitations,’ and Aultman supports that Michigan’s common law, too, embraces this principle. Accordingly, the circuit court erred by summarily dismissing this case on res judicata grounds."